Risk Management

Risks are not purely static and may change and evolve, whether through regulatory change, consumer and demographic change or because as an asset ages it becomes more challenging to maintain. Some risks can not be entirely mitigated but understanding how probable they are, and the degree of disruption they might represent is key to ensuring that acceptance of residual risk is conscious and weighted.

Development Risk

At the point of site acquisition and appraisal, understanding the target location for a community in terms of price point and land value is vital for determining viability. Understanding the wider context, in terms of amenity, transport links, potential competitor schemes is also critical to ensuring that the potential of the community is well-understood. Risks tend to be easier to predict above ground and where information may be rich relating to local people and context, but it may be more difficult to determine the state of affairs below ground (e.g. in respect of foundations, archaeology, contaminated land). 

In terms of community design, understanding the local people helps to ensure that the right blend of units is provided, with a view to ensuring lettability. Further, the interaction with the planning system in terms of local acceptance and understanding of BTR from political leadership, and appropriate acceptance within the letter of local plans and among officials.

The above can tend to mean that standard specifications for BTR products will need to be sense checked against local context to ensure that there is not a fundamental feature of the local context that may disrupt the model. This is not to say that there are not efficiencies that can be realised around the structure of a building, stacking and floor plates.

Legislative Risk

In terms of legislative risk, this often presents when a new risk is identified or a market failure requires correction. A notable example, and one that is likely to present a paradigm shift in the case of management of information during a community’s life, is that of the Building Safety Bill. This will inaugurate requirements for named persons to be responsible for life safety in buildings, and for a digital thread of information to be maintained during a building’s lifecycle concerning how the building was designed, built and operated. Not only will this place obligations upon existing owners and operators of communities, but is likely to feature as a packet of information that is exchanged when a building itself is exchanged. The ability to collate the necessary information is likely to be easier in the case of newly constructed buildings, but more difficult in the case of existing buildings. Mitigating legislative risk often involves taking a holistic look at risks to built assets and the enterprise, and seeking to anticipate the regulatory curve. This approach has suffused attempts by many property owners to understand, in a different policy domain, their risk and pathway toward net zero following the UK Government’s shift to a net zero 2050 target across the economy.

Design Risk

Understanding local context and people is also important for design and provision of amenity in BTR. Meeting customer needs and expectations is paramount but focus and strategy is necessary to ensure that amenity space combines meeting the needs of residents with ensuring that marginal use cases do not lead to disproportionate operational costs.

Given the emphasis on operation, when seeking a partner operator for schemes, it is important that they understand the market as you do, and share your values. Onboarding at lease-up can present a positive experience for residents when they are being onboarded, but their experience during their lease will typically affect retention, and their willingness to renew.

Risk is a present fact in real estate, and BTR is not inured to it. However, there are best practices that can be deployed to mitigate and to quantify risks, both in terms of their severity and their likelihood.